Q3 2025 State Street Corp Earnings Call

Elizabeth Lynn: Corporation third quarter 2025 earnings conference call and webcast. Today's call will be hosted by Elizabeth Lynn, Head of Investor Relations at State Street Corporation. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted and all rights are reserved. This call may not be rerecorded for broadcast or distribution in whole or in part without the expressed written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website. Now, I would like to hand the call over to Elizabeth Lynn.

Speaker #1: We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session.

Speaker #1: Today's discussion is being broadcast live on State Street's website at investors.statestreet.com. This conference call is also being recorded for replay. State Street's conference call is copyrighted, and all rights are reserved.

Speaker #1: This call may not be re-recorded for broadcast or distribution in whole or in part without the express written authorization from State Street Corporation. The only authorized broadcast of this call will be housed on the State Street website.

Speaker #1: Now, I would like to hand the call over to Elizabeth Lynn.

Speaker #2: Thank you, Operator.

[Company Representative]: Thank you, operator. Good morning and thank you all for joining us. On our call today, our CEO, Ron O’Hanley, will speak first. Then John Woods, our CFO, will take you through our third quarter 2025 earnings presentation, which is available for download in the investor relations section of our website, investors.statestreet.com. Afterward, we'll be happy to take questions. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our presentation. In addition, today's call will contain forward-looking statements.

Speaker #1: Good morning, and thank you all for joining us. On our call today, our CEO, Ronald O'Hanley, will speak first. Then, John Woods, our CFO, will take you through our third quarter 2025 earnings presentation, which is available for download in the Investor Relations section of our website, investors.statestreet.com.

Speaker #1: Afterward, we'll be happy to take questions. Before we get started, I'd like to remind you that today's presentation will include results presented on a basis that excludes or adjusts one or more items from GAAP.

Speaker #1: Reconciliations of these non-GAAP measures to the most directly comparable GAAP or regulatory measure are available in the appendix to our presentation. In addition, today's call will contain forward-looking statements; actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the risk factor section in our Form 10-K.

[Company Representative]: Actual results may differ materially from those statements due to a variety of important factors, such as those referenced in our discussion today and in our SEC filings, including the risk factors section in our Form 10-K. Our forward-looking statements speak only as of today, and we disclaim any obligation to update them, even if our view should change. With that, let me turn it over to Ron.

Speaker #1: Our forward-looking statements speak only as of today, and we disclaim any obligation to update them even if our views should change. With that, let me turn it over to Ron.

Speaker #3: Thank you, Liz. Good morning, everyone, and thank you for joining us. I'm pleased to welcome John Woods to his first earnings call with State Street.

Ron O’Hanley: Thank you, Liz. Good morning, everyone, and thank you for joining us. I'm pleased to welcome John Woods to his first earnings call with State Street. John brings deep and additive expertise to our leadership team, and we're excited about the perspective he adds. Turning to our results, I'll begin with our third quarter highlights before turning it over to John, who will walk you through our financial results in greater detail. Slide two of our investor presentation highlights the strength of our third quarter results, with quarterly earnings per share of $2.78, increasing 23% year over year. Our strong financial performance reflects disciplined execution against our strategic priorities and our ability to effectively capitalize on the constructive market environment in the quarter. We continue to demonstrate good business momentum and consistent delivery of improved financial performance.

Speaker #3: John brings deep and additive expertise to our leadership team, and we're excited about the perspective he adds. Turning to our results, I'll begin with our third quarter highlights before turning it over to John, who will walk you through our financial results in greater detail.

Speaker #3: Slide two of our investor presentation highlights the strength of our third quarter results, with quarterly earnings per share of $2.78, increasing 23% year-over-year. Our strong financial performance reflects disciplined execution against our strategic priorities and our ability to effectively capitalize on the constructive market environment in the quarter.

Speaker #3: We continue to demonstrate good business momentum and consistent delivery of improved financial performance. For example, Q3 marked our seventh consecutive quarter of positive total operating leverage, excluding notable items.

Ron O’Hanley: For example, Q3 marked our seventh consecutive quarter of positive total operating leverage, excluding notable items, as we delivered total revenue growth of 9%, a pre-tax margin of 31%, and return on tangible common equity of 21%. These metrics highlight our ability to drive profitable growth by executing our growth strategy and continuing the transformation of our operating model. Investor demand, new technology, and a changing regulatory environment are creating new opportunities for us and our clients. Alongside our robust third quarter financial performance, we remain focused on advancing product innovation and enhancing our capabilities to better serve our clients and accelerate growth in key strategic areas. For example, as I'll outline shortly, we launched a series of strategic initiatives and new product capabilities in the third quarter, all designed to position State Street for sustained long-term growth.

Speaker #3: As we delivered total revenue growth of 9%, a pre-tax margin of 31%, and return on tangible common equity of 21%, these metrics highlight our ability to drive profitable growth by executing our growth strategy and continuing the transformation of our operating model.

Speaker #3: Investor demand, new technology, and a changing regulatory environment are creating new opportunities for us and our clients. Alongside our robust third quarter financial performance, we remain focused on advancing product innovation and enhancing our capabilities to better serve our clients and accelerate growth in key strategic areas.

Speaker #3: For example, as I'll outline shortly, we launched a series of strategic initiatives and new product capabilities in the third quarter, all designed to position State Street for sustained long-term growth.

Speaker #3: In investment services, we delivered strong year-over-year servicing fee growth and ended the quarter with a record $51.7 trillion in AUCA. We recorded one new alpha mandate, and another alpha client went live in the third quarter.

Ron O’Hanley: In investment services, we delivered strong year-over-year servicing fee growth and ended the quarter with a record $51.7 trillion in AUCA. We recorded one new Alpha mandate, and another Alpha client went live in Q3. State Street has long been a leader in technology-driven innovation. Today, our investment services team is building on that legacy by developing the tools and client capabilities that will empower our clients to succeed in an evolving market. For example, in the digital assets ecosystem, State Street already provides fund administration and accounting services for digital assets today. As we look ahead, we are strategically positioning State Street to be the bridge between traditional and digital finance, as well as a connection point between digital asset platforms. To that end, we are excited about the forthcoming launch of our digital asset platform, which will enable tokenization of assets, funds, and cash for institutional investors.

Speaker #3: STATE STREET has long been a leader in technology-driven innovation. Today, our investment services team is building on that legacy by developing the tools and client capabilities that will empower our clients to succeed in an evolving market.

Speaker #3: For example, in the digital assets ecosystem, State Street already provides fund administration and accounting services for digital assets today. As we look ahead, we are strategically positioning State Street to be the bridge between traditional and digital finance, as well as a connection point between digital asset platforms.

Speaker #3: To that end, we are excited about the forthcoming launch of our digital asset platform, which will enable tokenization of assets, funds, and cash for institutional investors.

Speaker #3: As the wealth market expands globally, we have noted the importance of building upon our front office wealth trading and portfolio construction capabilities in Charles River to further access this growing revenue pool.

Ron O’Hanley: As the wealth market expands globally, we have noted the importance of building upon our front office wealth trading and portfolio construction capabilities in Charles River to further access this growing revenue pool. We achieved a key milestone of our wealth services strategy in Q3 with the announcement of a strategic partnership and minority investment in Apex FinTech Solutions. Through this partnership, State Street will leverage Apex's digital custody and clearing platform to expand our wealth services offerings in support of the high-growth wealth management industry. The partnership will deliver a differentiated, fully digital, globally scalable custody and clearing solution and experience for wealth advisors and self-directed wealth platforms, as well as their clients around the world. As a result, this partnership will significantly strengthen State Street's investment servicing capabilities and build on our existing foundation to deliver the industry's first truly global digital wealth custody solution.

Speaker #3: We achieved a key milestone of our wealth services strategy in Q3 with the announcement of a strategic partnership and minority investments in APEX FinTech Solutions.

Speaker #3: Through this partnership, State Street will leverage APEX's digital custody and clearing platform to expand our wealth services offerings in support of the high-growth wealth management industry.

Speaker #3: The partnership will deliver a differentiated, fully digital, globally scalable custody and clearing solution and experience for wealth advisors and self-directed wealth platforms, as well as their clients around the world.

Speaker #3: As a result, this partnership will significantly strengthen State Street's investment services and capabilities, and build on our existing foundation to deliver the industry's first truly global digital wealth custody solution.

Speaker #3: The third quarter also marked an important milestone for State Street Investment Management, which reported record quarterly management fee revenue, as period-end AUM climbed to a record $5.4 trillion, just one quarter after surpassing the $5 trillion mark for the first time.

Ron O’Hanley: The third quarter also marked an important milestone for State Street investment management, which reported record quarterly management fee revenue as period-end AUM climbed to a record $5.4 trillion, just one quarter after surpassing the $5 trillion mark for the first time. We continued to innovate at pace, further strengthening our investment management capabilities to drive growth across several strategic focus areas. For example, we launched 11 select FIDER premium income ETFs, enabling investors to tap into sector-specific opportunities with enhanced income potential. Elsewhere, by broadening our suite of actively managed target maturity ETFs, we further strengthened our capabilities in fixed income solutions, which remains a key strategic priority. Importantly, the third quarter provided several compelling examples of how our partnerships with some of the world's leading investment firms are expanding and strengthening our client capabilities, positioning us for future growth.

Speaker #3: We continue to innovate at pace, further strengthening our investment management capabilities to drive growth across several strategic focus areas. For example, we launched 11 select FIDO premium income ETFs, enabling investors to tap into sector-specific opportunities with enhanced income potential.

Speaker #3: Elsewhere, by broadening our suite of actively managed target maturity ETFs, we further strengthened our capabilities in fixed income solutions, which remains a key strategic priority.

Speaker #3: Importantly, the third quarter provided several compelling examples of how our partnerships with some of the world's leading investment firms are expanding and strengthening our client capabilities.

Speaker #3: Positioning us for future growth. For example, in continued partnership with Apollo, we made further progress in expanding access to private markets with the launch of PRSD, an actively managed short-term bond ETF.

Ron O’Hanley: For example, in continued partnership with Apollo, we made further progress in expanding access to private markets with the launch of PRSD, an actively managed short-term bond ETF, which combines exposure to investment-grade public and private credit. We also launched a euro-denominated AAA CLO UCITS ETF in partnership with Blackstone, building on our successful track record together, which includes actively managed high-income and senior loan ETFs. Finally, in Europe, we entered a strategic partnership with VanLanschak Kempen Investment Management that will drive further innovation across our respective investment offerings in this key strategic region. State Street markets continue to see the results of its efforts to deepen client relationships, delivering strong year-over-year revenue growth in both securities finance and FX trading services.

Speaker #3: This combines exposure to investment-grade public and private credit. We also launched a Euro-denominated AAA CLO UCITS ETF in partnership with Blackstone, building on our successful track record together.

Speaker #3: Which includes actively managed high-income and senior loan ETFs. Finally, in Europe, we entered a strategic partnership with Van Lanschot Kempen Investment Management that will drive further innovation across our respective investment offerings in this key strategic region.

Speaker #3: STATE STREET markets continue to see the results of its efforts to deepen client relationships, delivering strong year-over-year revenue growth in both securities, finance, and FX trading services.

Speaker #3: As a testament to the strength of our markets franchise and the value we deliver to clients, we're proud that State Street was recognized with eight category wins in Euromoney Magazine's 2025 FX Awards.

Ron O’Hanley: As a testament to the strength of our markets franchise and the value we deliver to clients, we're proud that State Street was recognized with eight category wins in Euromoney Magazine's 2025 FX Awards, doubling our achievements from 2024. These industry recognitions are strong endorsements of our continuous effort to deliver best-in-class trading and financing solutions, technology platforms, and research to our clients globally. Turning to our balance sheet, our solid financial position has enabled us to return nearly $1.5 billion in capital to shareholders year to date through common share repurchases and dividends, including $637 million in the third quarter. As previously announced, we were pleased to increase State Street's quarterly per share common stock dividend by 11% to $0.84 in Q3. We remain committed to returning capital to our shareholders.

Speaker #3: Doubling our achievements from 2024, these industry recognitions are strong endorsements of our continuous effort to deliver best-in-class trading and financing solutions, technology platforms, and research to our clients globally.

Speaker #3: Turning to our balance sheet, our solid financial position has enabled us to return nearly $1.5 billion in capital to shareholders year to date through common share repurchases and dividends.

Speaker #3: Including $637 million in the third quarter. As previously announced, we were pleased to increase State Street's quarterly per-share common stock dividend by 11% to $0.84 in Q3.

Speaker #3: We remain committed to returning capital to our shareholders. Before I conclude my prepared remarks, I'd like to take a moment to extend my gratitude to Mark Keating for his outstanding leadership during his tenure as interim Chief Financial Officer.

Ron O’Hanley: Before I conclude my prepared remarks, I'd like to take a moment to extend my gratitude to Mark Keating for his outstanding leadership during his tenure as Interim Chief Financial Officer. Mark stepped into the role during a pivotal time and provided invaluable stability and leadership as we navigated the transition period. Mark will continue to play an important role in shaping our long-term financial strategy and driving enterprise-wide initiatives, working closely with John. To conclude, the third quarter marked several strategic and performance milestones for State Street, reinforcing the effectiveness of our strategy. We delivered our seventh consecutive quarter of positive total operating leverage, excluding notable items, a clear indicator of sustained momentum. Our continued improving financial performance is supported by a range of tangible proof points that highlight how we are expanding product capabilities and driving innovation across the firm.

Speaker #3: Mark stepped into the role during a pivotal time and provided invaluable stability and leadership as we navigated the transition period. Mark will continue to play an important role in shaping our long-term financial strategy and driving enterprise-wide initiatives, working closely with John.

Speaker #3: To conclude, the third quarter marked several strategic and performance milestones for State Street, reinforcing the effectiveness of our strategy. We delivered our seventh consecutive quarter of positive total operating leverage, excluding notable items.

Speaker #3: A clear indicator of sustained momentum. Our continued improving financial performance is supported by a range of tangible proof points that highlight how we are expanding product capabilities and driving innovation across the firm.

Speaker #3: These efforts continue to position us for future growth and long-term value creation for our shareholders. With that, let me hand the call over to John, who will take you through the quarter in more detail.

Ron O’Hanley: These efforts continue to position us for future growth and long-term value creation for our shareholders. With that, let me hand the call over to John, who will take you through the quarter in more detail.

Speaker #4: Thank you, Ron, and good morning, everyone. Turning to slide three, as Ron mentioned, we delivered strong third-quarter financial results that reflect healthy business momentum and consistent execution, driving EPS growth of 23% year-over-year to $2.78.

John Woods: Thank you, Ron, and good morning, everyone. Turning to slide three, as Ron mentioned, we delivered strong third-quarter financial results that reflect healthy business momentum and consistent execution, driving EPS growth of 23% year over year to $2.78. Total revenue increased 9% year over year to approximately $3.5 billion and included fee revenue growth of nearly 12%, excluding notable items. Fee revenue growth was broad-based, supported by active client engagement amid a constructive market environment. Servicing fees were up 7%, management fees increased 16%, and FX trading services and securities finance revenues were collectively up 17%, excluding notable items year over year. Expenses increased approximately 5% year over year to $2.4 billion as we continued to prudently manage our expense base while also funding key strategic initiatives and technology investments to support future growth.

Speaker #4: Total revenue increased 9% year-over-year to approximately $3.5 billion and included fee revenue growth of nearly 12%, excluding notable items. Fee revenue growth was broad-based, supported by active client engagement amid a constructive market environment.

Speaker #4: Servicing fees were up 7%, management fees increased 16%, and FX trading services and securities finance revenues were collectively up 17%, excluding notable items year over year.

Speaker #4: Expenses increased approximately 5% year over year to $2.4 billion, as we continued to prudently manage our expense base while also funding key strategic initiatives and technology investments to support future growth.

Speaker #4: Taken together, our strong third quarter performance delivered substantial fee and total operating leverage of over 600 basis points and over 300 basis points, respectively, year over year, and excluding notable items.

John Woods: Taken together, our strong third-quarter performance delivered substantial fee and total operating leverage of over 600 basis points and over 300 basis points, respectively, year over year and excluding notable items. Our pre-tax margin expanded approximately 270 basis points to 31%, while our return on tangible common equity was approximately 160 basis points higher at 21% compared to the year-ago period. Turning now to slide four, servicing fees increased 7% year over year, primarily driven by higher average market levels, net new business, and the impact of currency translation. AUCA reached a new record of $51.7 trillion, increasing 10% year over year, driven by higher period-end market levels and strong client flows. We achieved nearly $50 million in servicing fee revenue wins in the quarter, bringing our year-to-date total to approximately $250 million.

Speaker #4: Our pre-tax margin expanded approximately 270 basis points to 31%, while our return on tangible common equity was approximately 160 basis points higher at 21%, compared to the year-ago period.

Speaker #4: Turning now to slide four, servicing fees increased 7% year over year, primarily driven by higher average market levels, net new business, and the impact of currency translation.

Speaker #4: AUCA reached a new record of $51.7 trillion, increasing 10% year over year, driven by higher period-end market levels and strong client flows. We achieved nearly $50 million in servicing fee revenue wins in the quarter, bringing our year-to-date total to approximately $250 million.

Speaker #4: We remain intensely focused on driving servicing fee revenue growth, particularly in core back-office solutions and private markets, which together account for the vast majority of both our third quarter and year-to-date wins.

John Woods: We remain intensely focused on driving servicing fee revenue growth, particularly in core back office solutions and private markets, which together account for the vast majority of both our third quarter and year-to-date wins. Our pipeline remains healthy and well-diversified, and we are on track to meet our full-year target of $350 to $400 million. This momentum is reflected in our third-quarter servicing fee revenue backlog of approximately $400 million, up roughly 40% from the prior year. Installing our backlog remains a top priority as we focus on delivering consistent organic servicing fee growth in the quarters ahead. Additionally, we reported one new Alpha mandate win with another client going live in the quarter. As Ron noted, we recently finalized a strategic partnership and minority investment in Apex FinTech Solutions.

Speaker #4: Our pipeline remains healthy and well-diversified, and we are on track to meet our full-year target of $350 million to $400 million. This momentum is reflected in our third-quarter servicing fee revenue backlog of approximately $400 million, up roughly 40% from the prior year.

Speaker #4: Installing our backlog remains a top priority as we focus on delivering consistent organic servicing fee growth in the quarters ahead. Additionally, we've reported one new alpha mandate win, with another client going live in the quarter.

Speaker #4: As Ron noted, we recently finalized a strategic partnership and minority investment in APEX FinTech Solutions. This partnership will expand our wealth services offering through APEX's digital custody and clearing platform and supports the long-term growth of our investment servicing business.

John Woods: This partnership will expand our wealth services offering through Apex's digital custody and clearing platform and supports the long-term growth of our investment servicing business. Turning to slide five, management fees increased 16% year over year to a quarterly record of $612 million, primarily driven by higher average market levels and net inflows. Assets under management increased 15% year over year to a record $5.4 trillion, supported by higher period-end market levels and client inflows. Net inflows totaled $26 billion for the quarter, reflecting solid momentum across ETFs, cash, and institutional index fixed income. In ETFs, our U.S. low-cost suite continued to gain market share, achieving record flows in the quarter. Our gold ETF suite further strengthened its market leadership, reaching a record AUM of approximately $145 billion. This strong performance reflects both robust inflows supported by our expanded distribution globally, as well as elevated spot prices.

Speaker #4: Turning to slide five, management fees increased 16% year over year to a quarterly record of $612 million, primarily driven by higher average market levels and net inflows.

Speaker #4: Assets under management increased 15% year over year, to a record $5.4 trillion, supported by higher period-end market levels and client inflows. Net inflows totaled $26 billion for the quarter, reflecting solid momentum across ETFs, cash, and institutional index fixed income.

Speaker #4: In ETFs, our U.S. low-cost suite continued to gain market share, achieving record flows in the quarter. Our gold ETF suite further strengthened its market leadership, reaching a record AUM of approximately $145 billion.

Speaker #4: This strong performance reflects both robust inflows supported by our expanded distribution globally, as well as elevated spot prices. As Ron mentioned, innovation remains a cornerstone of our investment management growth strategy.

John Woods: As Ron mentioned, innovation remains a cornerstone of our investment management growth strategy. In the third quarter, we launched 39 new products, including an expansion of our select sector suite and new alternatives exposures. These initiatives broaden the capabilities available to clients and support organic net new asset growth. We are encouraged by the robust performance of our investment management business in the third quarter, which delivered a pre-tax margin of approximately 36%, up nearly 600 basis points from the prior year quarter. Turning to slide six, State Street markets delivered strong third-quarter results with solid year-over-year growth in both FX trading services and securities finance. Our markets franchise is strategically positioned to support both our investment services and investment management businesses, delivering integrated value across the entire franchise. FX trading revenue increased 16% year over year, excluding prior period notable items.

Speaker #4: In the third quarter, we launched 39 new products, including an expansion of our select sector suite and new alternatives exposures. These initiatives broaden the capabilities available to clients and support organic net new asset growth.

Speaker #4: We are encouraged by the robust performance of our investment management business in the third quarter, which delivered a pre-tax margin of approximately 36%, up nearly 600 basis points from the prior year quarter.

Speaker #4: Turning to slide six, State Street markets delivered strong third quarter results, with solid year-over-year growth in both FX trading services and securities finance. Our markets franchise is strategically positioned to support both our investment services and investment management businesses, delivering integrated value across the entire franchise.

Speaker #4: FX trading revenue increased 16% year over year, excluding prior period notable items. While FX volatility was relatively muted, client volumes increased 11% year over year, with strong growth across all of our trading venues.

John Woods: While FX volatility was relatively muted, client volumes increased 11% year over year with strong growth across all of our trading venues. Securities finance revenues increased 19% year over year, driven by robust balance growth across both agency lending and prime services. In agency lending, third-quarter performance benefited from increased assets on loan and specials activity, while in prime services, our targeted client engagement supported solid revenue growth for the quarter. Moving to slide seven, software and processing fees increased 9% year over year. Front office software and data revenue increased 14% year over year, driven by higher on-premises renewals, growth in professional services, and continued expansion of software-enabled revenue as we converted and implemented more clients onto our cloud-based SaaS platform. In turn, annual recurring revenue increased by approximately 13% year over year to approximately $400 million in the third quarter.

Speaker #4: Securities finance revenues increased 19% year over year, driven by robust balance growth across both agency lending and prime services. In agency lending, third-quarter performance benefited from increased assets on loan and specials activity, while in prime services, our targeted client engagement supported solid revenue growth for the quarter.

Speaker #4: Moving to slide seven, software and processing fees increased 9% year over year. Front office software and data revenue increased 14% year over year, driven by higher on-premises renewals, growth in professional services, and continued expansion of software-enabled revenue as we converted and implemented more clients onto our cloud-based SaaS platform.

Speaker #4: In turn, annual recurring revenue increased by approximately 13% year over year, to approximately $400 million in the third quarter. Our front office revenue backlog remains healthy, increasing 45% year over year and reinforcing our confidence in the future growth of this business.

John Woods: Our front office revenue backlog remains healthy, increasing 45% year over year and reinforcing our confidence in the future growth of this business. Moving to slide eight, net interest income of $715 million was down 1% year over year. This performance reflects an 11 basis point decline in the net interest margin to 96 basis points, primarily driven by lower average short end rates and deposit mix shift, partially offset by the reinvestment of securities portfolio cash flows at higher yields and higher interest earning assets supported by higher deposit balances. On a sequential basis, net interest income declined 2%, primarily due to a reduction in the interest earning assets resulting from lower deposit balances compared to elevated second quarter levels, as well as lower average short end rates.

Speaker #4: Moving to slide eight, net interest income of $715 million was down 1% year-over-year. This performance reflects an 11 basis point decline in the net interest margin to 96 basis points.

Speaker #4: Primarily driven by lower average short-end rates and a deposit mix shift, partially offset by the reinvestment of securities portfolio cash flows at higher yields and higher interest-earning assets, supported by higher deposit balances.

Speaker #4: On a sequential basis, net interest income declined 2%, primarily due to a reduction in the interest-earning assets resulting from lower deposit balances compared to elevated Q2 levels, as well as lower average short-end rates.

Speaker #4: These factors were partially mitigated by the reinvestment of securities portfolio cash flows at higher yields, along with continued client-driven loan growth, which contributed to an improvement in the interest-earning asset mix supporting a stable net interest margin on a linked quarter basis.

John Woods: These factors were partially mitigated by the reinvestment of securities portfolio cash flows at higher yields, along with continued client-driven loan growth, which contributed to an improvement in interest earning asset mix, supporting a stable net interest margin on a linked quarter basis. Turning to slide nine, expenses increased approximately 5% year over year, primarily driven by continued investments in technology and strategic initiatives, higher revenue-related costs, and the impact of currency translation, partially offset by continued productivity savings. Compensation-related costs were well contained, increasing 2% year over year in the third quarter. This increase was primarily driven by higher salaries and benefits and the impact of currency translation, partially mitigated by a reduction in headcount, including from ongoing operating model transformation and process improvements.

Speaker #4: Turning to slide nine, expenses increased approximately 5% year-over-year, primarily driven by continued investments in technology and strategic initiatives, higher revenue-related costs, and the impact of currency translation, partially offset by continued productivity savings.

Speaker #4: Compensation-related costs were well contained, increasing 2% year over year in the third quarter. This increase was primarily driven by higher salaries and benefits, and the impact of currency translation, partially mitigated by a reduction in headcount, including from ongoing operating model transformation and process improvements.

Speaker #4: Information systems and communications expense increased 12% year over year, primarily due to ongoing investments in platform modernization and resiliency, AI tools, enhanced data delivery, and improved user experience, as well as higher client implementation activity and volumes.

John Woods: Information systems and communications expense increased 12% year over year, primarily due to ongoing investments in platform modernization and resiliency, AI tools, enhanced data delivery, and improved user experience, as well as higher client implementation activity and volumes. In parallel, we continue to advance our productivity and optimization initiatives, generating approximately $125 million in year-over-year savings during the quarter. These efforts have delivered approximately $370 million of savings year to date, keeping us firmly on track to achieve our full-year savings target of $500 million. Our ongoing productivity and other savings initiatives have enabled us to deliver both fee and total operating leverage, while also creating capacity to invest strategically in growth areas such as wealth services, Alpha, private markets, AI, and process automation.

Speaker #4: In parallel, we continue to advance our productivity and optimization initiatives, generating approximately $125 million in year-over-year savings during the quarter. These efforts have delivered approximately $370 million in savings year-to-date, keeping us firmly on track to achieve our full-year savings target of $500 million.

Speaker #4: Our ongoing productivity and other savings initiatives have enabled us to deliver both fee and total operating leverage, while also creating capacity to invest strategically in growth areas such as wealth services, alpha, private markets, AI, and process automation.

Speaker #4: Moving to slide ten, our standardized CET1 ratio was 11.3% at quarter-end, up approximately 60 basis points quarter over quarter. This increase reflects capital generated from earnings and a decline in risk-weighted assets coming off the elevated FX volatility of the prior quarter.

John Woods: Moving to slide 10, our standardized set one ratio was 11.3% at quarter end, up approximately 60 basis points quarter over quarter, reflecting capital generated from earnings and a decline in risk-weighted assets coming off of the elevated FX volatility of the prior quarter. We returned $637 million of capital to common shareholders during the third quarter, consisting of $400 million in common share repurchases and $237 million in declared common stock dividends, for a total payout ratio of 79%. As Ron O’Hanley noted, in the third quarter, we were pleased to increase our per share quarterly common dividend by 11% to $0.84. To wrap up, let's turn to our outlook, which, as a reminder, excludes notable items.

Speaker #4: We returned $637 million of capital to common shareholders during the third quarter, consisting of $400 million in common share repurchases and $237 million in declared common stock dividends, for a total payout ratio of 79%.

Speaker #4: As Ron noted, in the third quarter, we were pleased to increase our per-share quarterly common dividend by 11%, to $0.84. To wrap up, let's turn to our outlook, which, as a reminder, excludes notable items.

Speaker #4: Building on our strong year-to-date performance and a constructive market environment, we now expect 2025 total fee revenue growth in the 8.5% to 9% range, an improvement to our prior outlook of at or slightly above the 5% to 7% range.

John Woods: Building on our strong year-to-date performance and a constructive market environment, we now expect 2025 total fee revenue growth in the 8.5% to 9% range, an improvement to our prior outlook of at or slightly above the 5% to 7% range. We expect full-year NII to be down slightly relative to last year's record performance. Turning to expenses, with our improved outlook for fee revenue, full-year expense growth is now expected to be roughly 4.5%, up from our prior outlook of the upper end of the 3% to 4% range, reflecting ongoing investments in technology and strategic initiatives, along with higher revenue-related costs. Importantly, we continue to generate significant positive fee and total operating leverage this year.

Speaker #4: We expect full-year NII to be down slightly relative to last year's record performance. Turning to expenses, with our improved outlook for fee revenue, full-year expense growth is now expected to be roughly 4.5%, up from our prior outlook of the upper end of the 3% to 4% range, reflecting ongoing investments in technology and strategic initiatives, along with higher revenue-related costs.

Speaker #4: Importantly, we continue to generate significant positive fee and total operating leverage this year. Given where we are in the year, our full-year outlook implies that for the fourth quarter, fee revenue will be flat to down slightly quarter over quarter, reflecting a normalization in other fee revenue from an elevated Q3, while suggesting a sequential increase in NII.

John Woods: Given where we are in the year, our full-year outlook implies that for the fourth quarter, fee revenue will be flat to down slightly quarter over quarter, reflecting a normalization in other fee revenue from an elevated Q3, while suggesting a sequential increase in NII. On expenses, our updated full-year outlook suggests that expenses will be up slightly in Q4 compared to the prior quarter. We continue to target a total payout ratio of approximately 80% for 2025, subject to market conditions and other factors, while also deploying capital to support our clients, drive organic growth, and fund strategic investments. In conclusion, our third-quarter results reflect the strength of our execution and the resilience of our strategy, driving consistent business momentum and delivering meaningful fee and total operating leverage.

Speaker #4: And on expenses, our updated full-year outlook suggests that expenses will be up slightly in Q4 compared to the prior quarter. Finally, we continue to target a total payout ratio of approximately 80% for 2025, subject to market conditions and other factors, while also deploying capital to support our clients, drive organic growth, and fund strategic investments.

Speaker #4: In conclusion, our third-quarter results reflect the strength of our execution and the resilience of our strategy, driving consistent business momentum and delivering meaningful fee and total operating leverage.

Speaker #4: On a personal note, I'm excited to be partnering with Ron and the rest of the State Street management team, and I'm very optimistic about the opportunity ahead of us at State Street as we aim to build upon the strong results we've achieved year-to-date.

John Woods: On a personal note, I'm excited to be partnering with Ron and the rest of the State Street management team, and I'm very optimistic about the opportunity ahead of us at State Street as we aim to build upon the strong results we've achieved year to date. With that, operator, we can now open the call for questions.

Speaker #4: And with that, Operator, we can now open the call for questions.

Speaker #5: At this time, we will open the floor for questions. If you would like to ask a question, please press star five on your telephone keypad.

Elizabeth Lynn: At this time, we will open the floor for questions. If you would like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. Please note, you'll be allowed one question and one related follow-up question. Again, that is star five to ask a question, and we'll pause just a moment for the queue to form. Thank you. Our first question will come from Alex Blossom with Goldman Sachs. Your line is open. Please go ahead.

Speaker #5: You may remove yourself at any time by pressing star five again. Please note, you will be allowed one question and one related follow-up question.

Speaker #5: Again, that is star five to ask a question. And we'll pause just a moment for the queue to form. Thank you. Our first question will come from Alex Blossom with Goldman Sachs. Your line is open, please go ahead.

Speaker #6: Hey, good morning, everybody. Thank you for the question, John. Welcome to the call. I wanted to maybe get your thoughts as you're kind of, you know, getting your feet wet with the new business here at State Street.

[Analyst 1]: Hey, good morning, everybody. Thank you for the question, John. Welcome to the call. I wanted to maybe get your thoughts as you get your feet wet with the new business here with State Street. How are you thinking about both the balance sheet management and sort of operating dynamics in the company? Any additional steps you're looking to pursue as far as your early observations across the business go, either on the capital management, expense management, NII, any of those would be helpful just to get your first impressions.

Speaker #6: how are you thinking about, both the balance sheet management and sort of operating dynamics in the company, any, any additional steps, you're looking to pursue as far as just kind of your early observations, across the business go, either on the, again, capital management, expense management, NII, any, any of those thoughts would be, would be helpful just to get your first impressions.

Speaker #7: Yeah, thanks for the question, and good to be on the call. I mean, I think maybe I mentioned this previously at a conference that, you know, when I think about the priorities broadly, it starts with just partnering with the management team to drive execution and profitability.

[Analyst 2]: Yeah, thanks for the question and good to be on the call. I think maybe I mentioned this previously at a conference that I think about the priorities broadly. It starts with just partnering with the management team to drive execution and profitability. In my, I guess I'm completing my month two here. I'm exceptionally impressed with the level of innovation and momentum that we have here at State Street. That's the foundation that I thought I was joining, and all systems go on that front. Excited there. I will say that, where are some of the areas that I'll be partnering with Ron and the management team on? I will spend time in the balance sheet space. I think there are optimization opportunities on the balance sheet that I've been digging into in my early days here.

Speaker #7: And, you know, in my, I guess I'm completing my second month here, I'm exceptionally impressed with the level of innovation and momentum that we have here at State Street.

Speaker #7: and so that's, that's the foundation. That I thought I was joining, and, you know, all systems go on that front. So excited there. I will say that, you know, where are some of the, areas that, you know, I'll be partnering with Ron and the management team, on, I will, you know, spend time, in the balance sheet space, I think there are optimization opportunities.

Speaker #7: on the balance sheet, that I've been digging into, in my early days here. so that's, that, that'll, that'll be nice to see as, as that plays out in the coming quarters.

[Analyst 2]: That'll be nice to see as that plays out in the coming quarters. The other couple of items I'd also hasten to add is there's an exceptional opportunity in the productivity space that this management team has been hard at for quite some time. There is a lot ahead of us that we can accomplish together that's got a lot of tailwinds associated with it heading into 2026. That gives us opportunity to continue to invest and drive tech-related innovation over time. I'll be plugging in on that front. Lastly, all of the strategic initiatives that we have in front of us, both within the United States and around the world, with respect to geographic expansion and product development, those are broadly the areas of optimization and focus that I think I'm going to be looking at.

Speaker #7: But the other couple of items I'd also hasten to add is there's an exceptional opportunity in the productivity space that this management team has been hard at for quite some time.

Speaker #7: But there is a lot ahead of us that we can accomplish together. That's got a lot of tailwinds associated with it heading into 2026.

Speaker #7: And that, that gives us the opportunity to continue to invest and drive, you know, tech-related innovation over time. I'll be plugging in on that front.

Speaker #7: And, and then lastly, all of the strategic initiatives that we have in front of us, both within the United States and around the world, you know, with respect to geographic expansion and product development, you know, those are broadly the areas of optimization and, and, and focus that I think I'm going to be, looking at, and then just bringing it back to the maybe the specific point you raised with respect to, to balance sheet.

[Analyst 2]: Just bringing it back to maybe the specific point you raised with respect to balance sheet. Based upon all of that, maybe just to add, you look at some of the balance sheet trends more in the micro here at the end of the third quarter, heading into the fourth quarter, they're really solid trends coming out of all of that. Some strong deposit flows. You saw our net interest margin was flat quarter over quarter. As you may have seen in the overall guide for the year, sort of seeing net interest income and net interest margin both headed up as we head into the fourth quarter with some solid tailwinds there. That's encouraging. I think there's more, more opportunities on the balance sheet to keep that momentum heading into 2026.

Speaker #7: Based upon all of that, maybe just to add, you know, look at some of the balance sheet trends, more in the micro, here at the end of Q3, heading into Q4, they're really solid trends coming out of all of that.

Speaker #7: Some strong deposit flows, you saw our net interest margin was flat quarter over quarter. You know, I, as you, as you may have been, may have seen in the overall guide for the year, sort of seeing net interest income and net interest margin, both headed, headed up, as we head into the fourth quarter with some solid tailwinds there.

Speaker #7: So that's encouraging. I think there are more opportunities on the balance sheet to keep that momentum heading into 2026.

Speaker #6: Great. That's helpful. Thank you. And then, just as a follow-up related to NII, your point just now around NII improving in the fourth quarter relative to the third quarter, is it a function of just the balances being higher?

[Analyst 1]: Great. That's helpful. Thank you. Just as a follow-up related to NII, your point just now around NII improving in the fourth quarter relative to the third quarter, is it a function of just the balances being higher? I know they tend to pick up seasonally, or is there something more specific that you guys are already starting to work through to drive NII higher from here?

Speaker #6: I know they tend to pick up seasonally, or is there something more specific that you guys are already starting to work through to drive NII higher from here?

Speaker #7: Yeah, that's a good question. We did see the balance sheet come down in the third quarter. I think the outlook into the fourth quarter is for the balance sheet size to be about stable.

[Analyst 2]: Yeah, that's a good question. We did see the balance sheet come down in the third quarter. I think the outlook into the fourth quarter is for the balance sheet size to be about stable. I wouldn't call that the reason why we see NII and net interest margin rising into the fourth quarter, but it is important to stabilize that. It's important, the all-important deposit levels, which were down this quarter overall, but frankly, mix was improved into the third quarter. Non-interest bearing deposits held in, and we expect that to continue into Q4. We see deposits stabilizing with a number of tailwinds there that will ensure that stable deposits are something that we can count on in Q4. I'd say the real drivers are more about some other non-rate-related tailwinds.

Speaker #7: So, I wouldn't call that, you know, the reason why. We see NII and net interest margin rising into the fourth quarter, but it is important to stabilize that.

Speaker #7: And, and, you know, it's important—the all-important deposit levels—which were down this quarter overall—but frankly, the mix improved into the third quarter. Non-interest bearing deposits held in, and we expect that to continue into Q4.

Speaker #7: And we see deposits stabilizing, with a number of, tailwinds, there that, that, that will ensure that, that, that stable deposits is something that we can count on in 4Q.

Speaker #7: I'd say the real drivers are more about some other non-rate-related tailwinds. So, you know, we've got the recurring turnover of the investment portfolio, where you see cash flows maturing at lower rates being reinvested at higher rates.

[Analyst 2]: We've got the recurring turnover of the investment portfolio where you see cash flows maturing at lower rates, being reinvested at higher rates. That was a tailwind in the third quarter. It will continue to be one in the fourth quarter and beyond. I'd also highlight the fact that in the past, we had terminated some interest rate risk management hedges, and the negative drag related to that is already in our third quarter run rate. That's going to start to run down in the fourth quarter, which will become a recurring tailwind in Q4 and in 2026. Those two mostly non-rate-related tailwinds are giving us some good confidence about not only net interest margin growth into the fourth quarter, but those tailwinds will continue into 2026. I see some positive mix opportunities on an ongoing basis.

Speaker #7: That was a tailwind in the third quarter, and it will continue to be one in the fourth quarter and beyond. I'd also highlight the fact that in the past, we had terminated some interest rate risk management hedges.

Speaker #7: And the negative drag related to that is already in our third quarter run rate. That's going to start to run down in the fourth quarter, which will become a recurring tailwind in Q4 and in 2026.

Speaker #7: Those two sort of mostly non-rate-related tailwinds, are giving us some good confidence about, not only, net interest margin growth in the fourth quarter, but those tailwinds will continue into 2026, and I see some positive mix opportunities, on an ongoing basis, when you see how we're servicing, servicing, I mean, serving our customers in the loan space, loan mix was, was an improvement in, in 3Q, and that, and that could see that being a potential, supporter over time as well.

[Analyst 2]: When you see how we're servicing, I mean, serving our customers in the loan space, loan mix was an improvement in Q3, and I can see that being a potential supporter over time as well. Yeah, feeling pretty constructive about Q4 and NII.

Speaker #7: So, yeah, feeling pretty constructive about Q4 and NIM and NII.

Speaker #6: Great. Awesome. Thank you very much.

[Analyst 1]: Great. Awesome. Thank you very much.

Speaker #5: Our next question will come from Glenn Shore with Evercore. Your line is open. Please ask your question.

Elizabeth Lynn: Our next question will come from Glen Shore with Evercore. Your line is open. Please ask your question.

Speaker #8: Thanks very much. You know, maybe just a quick follow-up on that conversation. You know, we've, I think a couple of us have asked this in the past, but John, you being new to the party and getting a fresh look, I wonder how you think about, or how we should think about this year's State Street, you know, struggling around flat on net interest income.

[Analyst 3]: Thanks very much. Maybe just a quick follow-up on that conversation. I think a couple of us have asked this in the past, but John, you being new to the party and getting a fresh look, I wonder how you think about or how we should think about this year's State Street Corporation, you know, struggling around flat on net interest income. Last year, as you mentioned, record net interest income at your peers. This year is a good year. I'm just trying to think of from your fresh eyes, is there something different about the client mix? Is there something different about how you interact with the client base and ways you can talk through what operating deposits clients can park with you? Because your business overall grows plenty, and deposits usually come along with that.

Speaker #8: Last year, as you mentioned, record net interest income at your peers. This year is a good year. So I'm just trying to think of, from your fresh eyes, is there something different about the client mix?

Speaker #8: Is there something different about how you interact with the client base, and can you talk through what operating deposits clients can park with you?

Speaker #8: Because you're, your business overall grows plenty. and asset and deposits usually come along with that. So I, I, I, we don't have to rehash all the, the deposit beta stuff, but should we expect, I'm curious to get your thoughts on that, and then should we expect similar enough performance going forward in '26 and beyond, or is there something about the client mix that, that just deposits are different and you got to look at the, the totality of, of the earnings?

[Analyst 3]: We don't have to rehash all the deposit beta stuff, but should we expect, I'm curious to get your thoughts on that, and then should we expect similar enough performance going forward in Q2 and beyond, or is there something about the client mix that just deposits are different, and you got to look at the totality of the earnings?

Speaker #7: Yeah, I mean, a couple of comments. And we'll spend some more time on this, you know, as we get to the 2026 outlook, and we'll cover this in a fair bit of additional detail.

[Analyst 2]: Yeah, I mean, a couple of comments, and we'll spend some more time on this as we get to the 2026 outlook, and we'll cover this in a fair bit of additional detail. I do observe what drives the bus here on the balance sheet is going to be deposit levels, both the level and quality of the mix of deposits, and pretty true for almost all banks, right? When I think about the trends in the deposit base, I think the macro is coming together relatively with a net tailwind, certainly heading into Q4. We'll update in January again, but in all likelihood into 2026. The few tailwinds I'd highlight are when you have the rate environment, we're heading, we've started the easing cycle that likely continues in the fourth quarter, maybe a bit into Q2 as well, as we see where rates are headed.

Speaker #7: But I do, I do observe, you know, what drives the bus here on the balance sheet is going to be deposit levels—both the level and quality of the mix of deposits. And that's pretty true for most, for almost all banks, right?

Speaker #7: And so, when I think about the trends in the deposit base, I think the macro is coming together relatively with a net tailwind.

Speaker #7: Certainly, heading into Q4, we'll update in January again, but in all likelihood, into 2026. The few tailwinds I'd highlight are, when you have the rate environment— we're heading in, you know, we've started the easing cycle that likely continues in the fourth quarter.

Speaker #7: Maybe a bit into '26 as well, as we see where rates are headed. That's typically a tailwind for deposit levels and often good for mix.

[Analyst 2]: That's typically a tailwind for deposit levels and often good for mix. You heard Chairman Powell talk about possibly Q2 ending. That also is a solid tailwind for system-level deposits. Just bringing it back to really the core franchise in terms of our fee-based drivers, AUCA drivers are all coming together quite nicely, and we'll talk about that being a really solid tailwind for deposit levels, which is where we generate our deposits. When I put all that together, I feel pretty good about the fact that the balance sheet being stable to rising over time is coming together nicely. You flip over to the other drivers, which would be impact of rates, where we're somewhat diversified across. We've got a balance sheet, majority of the balance sheet's in the U.S., but the asset sensitivity on the short end is close to neutral there.

Speaker #7: You heard Chairman Powell talk about possibly QT ending. That also is a solid tailwind for system-level deposits. And, you know, just bringing it back to really the core franchise in terms of our fee-based drivers.

Speaker #7: AUCA drivers are all coming together quite nicely, and we'll talk about that. It's being a really solid tailwind for deposit levels, which is where we generate our deposits.

Speaker #7: So, when I look at, when I put all that together, I, I feel pretty good about the fact that the balance sheet being stable to rising over time, is coming together nicely.

Speaker #7: And then you, and then you flip over to the other drivers, which would be the impact of rates, where we're somewhat diversified. We've got balance sheet, you know, the majority of the balance sheets in the U.S., but the asset sensitivity on the short end is, you know, close to neutral there.

Speaker #7: And then we have, you know, exposures to the euro area as well as sterling, where there's a different rate. We're asset sensitive outside the U.S., and it seems like rate stability there tells me that rates won't be nearly the headwind that it was year over year.

[Analyst 2]: We have exposures to the euro area as well as sterling, where there's a different rate, that we're asset sensitive outside the U.S., and it seems like rate stability there tells me that rates won't be nearly the headwind that it was year over year. Finally, the mix and the optimization work that we're going to continue to do, I think along with the idiosyncratic factors I mentioned about Q4, with terminated hedges running off, as well as the turnover of the balance sheet and investment portfolio in particular, where cash flows are getting reinvested at higher levels, which are less rate dependent. All of that comes together with some pretty solid forces that we'll talk to you more about in January to put it all together, but feeling pretty optimistic about some of the tailwinds there going forward.

Speaker #7: And then finally, the, the mix and the optimization work that we're going to continue, to do. I think along with the idiosyncratic factors I mentioned about 4Q, with terminated hedges running off, as well as the turnover of the balance sheet, and investment portfolio in particular, where, where cash flows are getting reinvested at higher levels, which, which are less rate dependent, all of that comes together with some pretty solid, you know, forces that, you know, we'll talk to you more about in January, to, to put it all together.

Speaker #7: But feeling pretty optimistic about some of the tailwinds there going ahead, going forward.

Speaker #6: I appreciate all that. Maybe a quickie: on the investment management side, you have a lot of product innovation, a lot of good flows, and more to come.

[Analyst 3]: I appreciate all that. Maybe a quickie on the investment management side. A lot of product innovation, a lot of good flows, and more to come. I like it. I don't know if you mentioned, apologize if I missed it, what the outflows were on the institutional side, and then the bigger picture is maybe talk a little bit towards your aspirations outside of your core footprint. Meaning it would be blasphemy in the past if I asked if State Street was going to broaden their actively managed footprint, but actually the world's a little different. There's more growth avenues. Outside of your core ETF and passive business, maybe longer-term aspirations, and thank you for all that.

Speaker #6: Like it. I don't know if you mentioned the -- I apologize if I missed it -- what the outflows were on the institutional side. And then, bigger picture, maybe talk a little bit about your aspirations outside of your core footprint.

Speaker #6: Meaning it; it would have been blasphemy in the past if I asked if State Street was going to broaden their actively managed footprint. But actually, the world's a little different.

Speaker #6: There's more growth avenues. So, outside of your core ETF and passive business, maybe longer-term aspirations. And thank you for all that.

Speaker #7: Yeah, Glenn, it's Ron. Why don't I take that?

Ron O’Hanley: Yeah, Glenn, it's Ron. Why don't I take that? John can add in. On flows, we were positive, as you saw, but that was net of some outflows and institutional really around mostly around one particular client, and you know, these things happen. To your broader question, we know what our strengths are, and our strengths are in the passive and systematic exposures from an asset management perspective. We're also a leader in product structures such as ETFs and target date funds. We've been able to turn the Spider franchise into a platform that's recognized and operating around the world and operates really as a distributor for us and others. We have actually broadened quite significantly beyond that core passive, but typically have been doing it, in the fixed income space, doing it ourselves. Outside of that, with key partnerships, I talked about some of them.

Speaker #3: And John can add in. On flows, they were positive as you saw, but that was net of some outflows in institutional, really around one particular client. And, you know, these things happen.

Speaker #3: To your broader question, we know what our strengths are, and our strengths are in the passive and systematic exposures. From an asset management perspective, we're also a leader in product structures, such as ETFs and target date funds.

Speaker #3: And we've been able to turn the spider franchise into a platform that's recognized and operating around the world, and operates really as a distributor for us and others.

Speaker #3: So, what? We have actually broadened quite significantly beyond that core passive, but typically have been doing it, well, in the fixed income space, doing it ourselves, but then outside of that with key partnerships.

Speaker #3: I talked about some of them; some of them are recent, such as Apollo. Some of them go back years, really strong partnerships with the likes of Blackstone.

Ron O’Hanley: Some of them are recent, such as Apollo. Some of them go back years, really strong partnerships with the likes of Blackstone. We will continue to do that. More and more, you see firms coming together, recognizing that a platform like the Spider platform is hard to replicate. There really is a limited number of platforms like that, and the fact that ours is open architecture in the sense that we will work with high-quality partners. You'll see us expand that way. To the extent to which there's select opportunities for us to move into active, we're only going to do that in places where, one, we think we can actually add value to clients, and two, that it can generate scalable, repeatable revenues is the way to think about it.

Speaker #3: And we will continue to do that. More and more, you see firms coming together, recognizing that a platform like the Spider platform is hard to replicate.

Speaker #3: There really is a limited number of platforms like that, and the fact that ours is open architecture in the sense that we will work with high-quality partners.

Speaker #3: So, you'll see us expand that way. And then, to the extent to which there are select opportunities for us to move into active, we're only going to do that in places where, one, we think we can actually add value to clients, and two, that it can generate scalable, repeatable revenues. That's the way to think about it.

Speaker #6: Ron, thanks for all that. I appreciate it.

[Analyst 3]: Ron, thanks for all that. I appreciate it.

Speaker #5: Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Elizabeth Lynn: Our next question will come from Mike Mayo with Wells Fargo. Your line is open. Please go ahead.

Speaker #6: Hi, can you hear me?

[Analyst 4]: Hi, can you hear me?

Speaker #3: We can, Mike.

Ron O’Hanley: We can, Mike.

Speaker #6: Hey, so John, back to that first set of eyes. You know, State Street stock, for the last five years, has underperformed the bank index by about 10 percentage points and one of your big competitors by over 100 percentage points.

[Analyst 4]: John, back to that press set of eyes. You know, State Street stock for the last five years has underperformed the bank index by about 10% and one of your big competitors by over 100%. Recently, State Street showed better fee growth, better operating leverage, innovation, and clearly you wouldn't have come to State Street if you didn't see some potential to provide greater shareholder value than has been delivered for the last five years. With that, and especially with less credit risk compared to your old firm too, what do you think is not understood about the State Street story and what would you do to help change that? Kind of separate but related, Ron, I was just wondering how many more years you're thinking about staying on as CEO. Thank you.

Speaker #6: So recently, State Street showed better fee growth, better operating leverage, and innovation. Clearly, you wouldn't have come to State Street if you didn't see some potential to provide greater shareholder value than has been delivered for the last five years.

Speaker #6: So, with that, and especially with less credit risk compared to your old firm, too. So, what do you think is, you know, not understood about the State Street story, and what would you do to help change that?

Speaker #6: And then, kind of separate but related, you know, Ron, I was just wondering, you know, how many more years you're thinking about staying on as CEO?

Speaker #6: Thank you.

Speaker #7: Thanks, Mike. happy to take that first part. and, you know, I think, here's what's, what I find exceptionally interesting. When you look at the, the fee-based tailwinds here, and, and in the third quarter in particular, the core growth, even when you strip out market and FX, on the investment management side, since we just spoke about that, is 5% year over year, just core net growth, excluding, you know, the, that, the other tailwinds.

[Analyst 2]: Thanks, Mike. Happy to take that first part. I think here's what I find exceptionally interesting. When you look at the fee-based tailwinds here, and in the third quarter in particular, the core growth, even when you strip out market and FX on the investment management side, since we just spoke about that, is 5% year over year, just core net growth, excluding the other tailwinds. Same on the servicing fee side of things where there's 2% net growth year over year. The tailwinds there continue to grow. When you look at the composition of our backlog and the pace of installations and in servicing, and what you see from an innovation standpoint on the management side of things, I think that story is underappreciated. I think the opportunities over the medium term on the fee revenue side of things are underappreciated.

Speaker #7: And same on the servicing fee side of things, where there's 2% net growth year over year, and the tailwinds there continue to grow.

Speaker #7: When you look at the composition of our backlog, the pace of installations, and the servicing, along with what you see from an innovation standpoint on the management side of things, I think that story is underappreciated.

Speaker #7: I think the opportunities over the medium term on the fee revenue side of things are underappreciated. I also think that the strategic overlap of our markets business with investment management and investment services is also underappreciated.

[Analyst 2]: I also think that the strategic overlap of our markets business with investment management and investment services is also underappreciated, and just how integrated that service offering is. I think we'll try to do a better job of shining and highlighting all of those things across those three large businesses. The second thing that comes to mind is the stability and visibility to net interest margin and NII over time. I think we have opportunity there. It's right in front of us. We have an exceptionally attractive deposit growth opportunity driven by our custody growth over time and a number of optimization opportunities that will allow us to, I believe, manage that in a way that creates more shareholder value in the future. Maybe I'll just close out with on the expense front.

Speaker #7: and, and, and just how integrated that service offering is, and I think we'll, we'll try to, you know, do a, a better job of shining a high, you know, in highlighting all of those things, across those three large businesses, the second thing that comes to mind is the stability and visibility to, net interest margin and NII over time.

Speaker #7: I think we have an opportunity there, and it's right in front of us. We have an exceptionally attractive deposit growth opportunity, driven by our custody growth over time.

Speaker #7: And, a number of optimization opportunities that will allow us to, I believe, manage that in a way that creates more shareholder value in the future.

Speaker #7: And then maybe I'll just close out with, on the expense front, the management team has done, a heck of a lot, from what I can see in my, I mean, month two here, but from what I can see, there's been just massive, movement in productivity.

[Analyst 2]: The management team has done a heck of a lot from what I can see in my, I mean, month two here, but from what I can see, there's been just massive movement in productivity, but there's a huge amount in front of us, which I find very exciting. All of that is our resources to continue to reallocate to customer-centric investments, as well as potentially share that to the bottom line on productivity. I'm sorry, on profitability. That's what I was hoping to see. Check the box across the board with some upside and even more excitement being inside the place than even when I was outside State Street. That's how I would talk about it.

Speaker #7: But there's a huge amount in front of us, which I find very exciting. All of that is a resource to continue to reallocate to customer-centric investments, as well as potentially share that, you know, to the bottom line on productivity.

Speaker #7: So, I'm sorry, on profitability. That's what I was hoping to see—check the box across the board, with some upside and even more excitement, you know, being inside the place than even when I was outside, State Street.

Speaker #7: So that's how I would talk about it.

Speaker #3: And, Mike, on your question, I will remain as CEO as long as the Board and I are confident in my leadership and ability to add value.

Ron O’Hanley: On your question, I will remain as CEO as long as the board and myself are confident in my leadership and ability to add value that translates into continuing improving shareholder value creation.

Speaker #3: This translates into continuing to improve shareholder value creation.

Speaker #5: Our next question will come from Ken Houston with Autonomous, your line is open. Please go ahead. Ken Houston, your line is open. Please go ahead.

Elizabeth Lynn: Our next question will come from Ken Houston with Autonomous. Your line is open. Please go ahead.

Speaker #8: Hey, it's Michael.

Speaker #6: Hey, good morning. So, oh, we're both here. Sorry about that. I was fighting the mute button. On the fee side, guys, I just wanted to ask, you know, we saw another $350 million plus of wins this quarter.

[Analyst 5]: Hey, it's Mike.

[Analyst 1]: Hey, good morning.

[Analyst 5]: Hey, I'm coming in.

[Analyst 1]: Oh, we're both here. Sorry about that. I was fighting the mute button. On the fee side, guys, I just wanted to ask, you know, we saw another $350 million plus of wins this quarter, good underlying strength on the services side. Can you just talk about any update to your expected trajectory of how that comes on, especially now that, you know, we're crowded towards the year with 40% this year? More importantly, how are those installations going? There's still some talk in the market about whether things are going as smoothly as we wanted to see on Alpha or not. I just want to ask you to talk through the installation cycle and the timing of that win base. Thank you.

Speaker #6: Good underlying strength on the services side. Can you just talk about any update to your expected trajectory of how that comes on, especially now that, you know, we're crowded towards the year with 40% this year?

Speaker #6: And, more importantly, how are those installations going? You know, there’s still some talk in the market about whether things are going as smoothly as we wanted to see on Alpha or not.

Speaker #6: So, I just kind of want to talk, ask it to kind of talk through the installation cycle and the timing of those, so that win and that win base.

Speaker #6: Thank you.

Speaker #7: Yeah, great. I'll start off there, and others may add. So, you know, $400 million in backlog at 9:30. Significant increase year over year.

[Analyst 2]: Yeah, great. I'll start off there, and others may add. So, you know, $400 million in backlog at 9/30, a significant increase year over year. You know, we see the installation outlook there to be quite attractive, as much as half of that being installed by the end of the year and a significant portion of the remainder being done by the end of 2026. That backlog level probably comes down a bit, which is reflective of installation pace. You know, we're going to want a healthy backlog balanced by sales and installations over time. We're feeling pretty good about the installation cycle on the backlog from 9/30.

Speaker #7: That, you know, we see the installation outlook there to be quite attractive, with as much as half of that being installed by the end of the year.

Speaker #7: And a significant portion of the remainder being done by the end of 2026. So the, the, that backlog level probably comes down a bit, which, which is reflective of, of, of, of installation pace.

Speaker #7: But, you know, we're going to want a healthy backlog balanced by sales and installations over time. But we're feeling pretty good about the installation cycle on the backlog from 9:30.

Speaker #3: Yeah, and in terms of how it's going, I mean, we're largely on track to what we said we would do at the beginning of the year.

Ron O’Hanley: Yeah, in terms of how is it going, we're largely on track to what we said we would do at the beginning of the year. We said that there was a real focus on installations that was a combination of, one, some of the early development kinds of things that we were doing with some of the earlier on Alpha partners were coming to a close and being installed, and there's been a lot of progress on that this year. Secondly, just getting better and more repeatable at it. We've really focused on turning this into a one-at-a-time kind of thing to a repeatable process and building installation into the early sales and engineering phases of the Alpha discussions, which is helping us immensely.

Ron O’Hanley: As John noted, as some of the later businesses come on, it's actually on a faster implementation pace than some of the earlier businesses, which is what you'd want to see from us.

[Analyst 2]: Yeah, just adding to that, I neglected to add that the mix of the backlog is actually quite attractive. Much more back office with all that ancillary, you know, opportunity to drive other products into a back office installation, as well as privates, which has attractive profitability associated with it. We're pleased about where the backlog is and where it'll get installed, but also the mix of that business is quite attractive as well.

[Analyst 1]: Okay, got it. Second question, just completely understanding the leakup and the expenses, FX translation, and also better revenues. It's obviously been a really good, still being able to put up good operating leverage. Kind of want to triangulate what you're saying about NII backup in the fourth, and we'll see what happens with the curves and all next year. How do you see? Think

Operator: About the magnitude of operating leverage that the company is capable of and how, and maybe, John, a question for you. How are you starting to triangulate, you know, kind of the save and spend balance as you think about what the right expense growth rate is for State Street?

Elizabeth Lynn: Yeah, a couple of different thoughts on that. I'd first try to remind that in the year over year, although the expenses are up 5%, 1% of that is FX. Of the remaining 4%, about half of that is revenue-related, and the rest of it is net investment, which really contains all of our productivity initiatives, which will continue and allow us to keep investing over time. There's real operating leverage year over year, as we've articulated, and feeling very good about the ongoing productivity as you head into 2026, as well as to allow us to keep investing and to keep, you know, kind of the ability to maintain profitability.

Elizabeth Lynn: The other thing I'd highlight is that even without, and if I go back to top of the house, even without, if you say, you know, fees up 12%, ex notables, year over year, and if you take out the markets and FX tailwinds, you nevertheless have significant operating leverage, you know, against the 4% growth in expenses of ex-FX year over year as well. A lot of our marginal business that we've brought on is all fee and operating leverage accretive. The foundation and incremental activity all seems to be heading in the right direction for fee operating leverage as well as total operating leverage.

So, and of the remaining 4% about half of that is revenue related and the rest of it is net investment. Uh, so, uh, which is really contains all of our productivity initiatives, which will continue and allows us to keep investing over time. There's there's, uh, there's there's real operating leverage year-over-year, uh, as we've articulated, um, and feeling very good about, uh, about the ongoing productivity as you head into 2026, as well as to allow us to keep investing and to keep, um, uh, you know, kind of the ability to maintain profitability. The other thing I'd highlight is that even without and if I go back to top of the house, even without, if you say, you know, fees up, 12% X notables year-over-year. And if you take out the markets and FX Tailwind, you nevertheless have significant operating leverage. Um, you know, uh, you know, against the 4% growth and expenses of XFX, you're

Over here as well. Um, a lot of our marginal business that we've brought on uh, is all fee and operating leverage accretive. Uh and so you know, the the the foundation and incremental activity, all seems to be heading in the right direction for fee operating leverage as well as total operating Leverage

[Company Representative]: What I would add to that, it's Ron here. As you know, we've had an ongoing transformation and productivity effort, and we are on pace to deliver what we said we would deliver for this year, which is about $500 million. At the same time, we, like I'm certain many others are doing, have leaned heavily into AI, and we're all early in that journey. We're seeing lots of opportunity to create improvement in client experiences, in the employee experience, in productivity, in unit costs, and speed. What's incumbent upon that and where the team is really leaning in, and we'll talk more about this next year, is how do we capture all that and deliver that back to shareholders?

And what I would add to that is Ron here. Um, as we, as you know, we

We we've had an ongoing uh, kind of transformation and productivity effort, um, and we are on pack on Pace to deliver what we said. We would deliver for this year, which is about 500 million. Um, at the same time, we like, I'm certain, I'm certain, many others are doing, um, have leaned heavily into Ai, and we're all early, uh, in that in that Journey, but we're seeing lots of opportunity, uh, to create Improvement in the in client experiences in the employee experience in productivity and unit costs and speed. Um and what's incumbent upon that, where the team is really leaning in and we'll talk more about this next year is, how do we capture all that and uh, deliver that back to uh to

To shareholders.

Ron O’Hanley: Our next question will come from Jim Mitchell with Seaport Global. Your line is open. Please go ahead.

Operator: Hey, good morning. You talked about strength on the market side. I think relative to some of your peers, it stood out, particularly on the FX side. Can you just talk about the environment versus what you're doing to grab share and how you're thinking about the growth outlook in those businesses from kind of elevated levels here?

Our next question will come from Jim Mitchell with Cport Global. Your line is open. Please go ahead.

Elizabeth Lynn: Yeah, sure. I mean, I think as you head into the fourth quarter, we had a sense that volatility is typically good for these businesses. We had a sense that volatility would rise from the third quarter, which was a little bit on the muted end of things. We didn't expect that it would be this high in October. Nevertheless, from where you see volatility, both in terms of equities as well as in the FX space, those are tailwinds to the market's business heading into the fourth quarter. We see some opportunity there. I would hasten to add, as I hinted at earlier, the overlap of the market's business with our core investment services clients in what we call an integrated FX offering. That's just flow business that continues to grow as our custody business continues to grow as a global custodian.

Hey, uh, good morning. Um, you talked about strength in, in the, on the market side. Um, I think relative to some of your peers, it was stood out uh particular on the FX side. So can you just talk about the environment versus what you're doing to grab, share and how you're thinking about the growth Outlook and those businesses from from kind of elevated levels here?

Elizabeth Lynn: That's something that would be a core as core growth continues in servicing fees, which we had in the third quarter, we will have again in the fourth quarter. As growth continues in investment management, where on the other side of the house, the securities lending business overlaps significantly with our investment management customers and clients, as investment management continues to grow, we'll see securities finance opportunities continue to grow. There really is an integrated offering across each of those three businesses. That's the underpinning of why we feel good about markets heading into the fourth quarter. Of course, there are market-dependent factors that you have to keep track of early on that, frankly, actually are constructive for the market's business. That's how I think about it. We have the core strategic business, and then you have the toggle and market-dependent based upon the environment.

Yeah, sure. I mean, I think as you head into the fourth quarter, um, you know, we had we had had a, a sense, a volatility is typically good for these businesses. Um, we had a sense that volatility would rise from the third quarter, which was a little bit on the muted end of things. Um, you know, we didn't expect that it would be this High, uh, you know, in October. But nevertheless it's, uh, the uh, from where where you see volatility both in terms of equities, as well as in the FX space, those are those are Tailwinds to the Market's business heading into the fourth quarter. And so we see some opportunity there. But I would, I would hasten to add as I'm as I hinted at earlier. The, the overlap of the uh, the Market's business with our core Investment Services clients in and what we call an integrated FX offering, um, that's just flow business that continues to grow as our custody, business continues to grow as a global custodian and so that's something

Elizabeth Lynn: That's how I think about how we did so well in the third quarter and what the trends might be going forward.

[Company Representative]: Jim, what I would add to that is we've talked for a long time now about building up our channel capability within FX and meeting our clients where they want to be and how they want to trade. We've built multiple venues and access points for our clients. Some of those are quite active in these decisions. Some of them are actually not since they set it on a sort of auto. We've got all those offerings in place. What I would point to is in addition to revenues being up, FX revenues, which is a combination of volume and volatility, volumes were up. Volumes were up on a double-digit basis year over year. That just reflects the efforts we've taken to, one, build share and continue to grow share, and secondly, to deliver a really strong client experience that then gets translated into repeated business.

You have to keep track of early early on that. Uh, frankly actually are are constructive for the Market's business, but that's how I think about it. We have the core strategic business and then you have the toggle and Market dependent based upon the environment. But, um, but that's, that's how I think about, uh, how we did so well in the in the third quarter and with with the trends might be going forward,

Jim, what I would add to that is, uh, we've talked for a long time now about building up our channel capability within FX and meeting our clients where they want to be and how they want to trade.

Um, so we've built multiple venues and access points for our clients. Um, some of those are quite active in these decisions, some of them are actually not since they set it on a sort of Auto and we've got all those offerings in place. And what I would point to is in addition to revenues being up FX revenues which is a combination of volume and volatility, um, volumes were up volumes were up in a double digit basis year over here and that just reflects the efforts. We've taken to, uh, 1 build, share and continue to grow share. And secondly, to deliver a, a, a a really strong client experience that then gets translated into repeated business.

Operator: Okay, yeah, that's helpful. Just maybe a follow-up on the expenses for next year and operating leverage. It seems like you, John, you feel like there's an opportunity to even maybe accelerate expense saves, and then you have to balance that with investment. Is the message that you have a good amount of flex if the revenue environment doesn't come out as good as you might think? Can you flex downward to maintain positive operating leverage? How should we think about your flexibility next year and beyond?

Elizabeth Lynn: Yeah, stay tuned in January. We'll give you the contours of this. There's no question there are discretionary levers that we can pull as management. We do want to continue to invest through downturns should one occur, and there are crown jewels that we're going to protect. We have that financial strength to be able to do that. However, if in fact there are drawdowns that put some pressure on servicing fees or management fees, a couple of things. I would hasten to add that the market's business and frankly NII can be shock absorbers in that kind of environment. First and foremost, we need to think about that, and those are significant revenue categories that would mute the impact.

Okay. Yeah, that that's that's helpful and just maybe a follow up on the expenses for next year and operating leverage it seems like you John you feel like there's an opportunity to even maybe accelerate um expense saves. And then you have to balance that with investment. So is the message that you have a good amount of Flex? If ra the revenue environment doesn't come out as good as you might think, can you Flex downward to, to maintain positive operating leverage? Just how should we think about your flexibility next year and Beyond

Elizabeth Lynn: Of course, there's the discretionary aspect of the pace of investment that we would recalibrate as we do on a continuous basis based upon what our revenue picture is and is expected to be. I'd say there are a number of levers that would allow us to continue to drive strong profitability even if we ended up with some kind of downturn that hypothetically could occur.

Yeah, I I you so you will stay tuned in January. We'll we'll we'll give you the Contours of this but there's no question. There's, there's discretionary levers that we can pull, as management, uh, we do want to continue to invest through downturns, should 1 occurs that we're going to protect, um, and we have that, that that Financial strength to be able to do that. However, um, if in fact there are, um, you know, draw Downs that put, uh, some pressure, uh, on on servicing fees or management fees. Uh, couple of things I would, I would hasten to add that the Market's business, and frankly knee can be shock absorbers in that kind of environment. So, first and foremost, we need to think about that. And those those are significant Revenue, uh, Revenue categories, that, that, that would would, um, mute the impact. And then, and then, of course, there's there's, there's the discretionary aspect of the pace.

Of investment that we would, you know, recalibrate. As we do on a continuous basis based upon what our Revenue picture is and is expected to be. So I I'd say there are a number of levers that would, uh, would allow us to continue to drive strong profitability. Even if we ended up with some kind of, uh, downturn, that, that hypothetically could occur.

Ron O’Hanley: Our next question will come from Abraham Punawala with Bank of America. Your line is open. Please go ahead.

Our next question will come from Abraham Poonawalla with Bank of America. Your line is open; please go ahead.

John Woods: Hey, good morning.

Operator: Morning.

Hey, good morning.

John Woods: Yes. Hey, John.

Operator: Hi.

John Woods: Maybe just following up on the capital piece. It sounds like everything you said, we should be setting up for some version of a franchise efficiency plan on the expense side as well as how you can tap into growth, even in a much more better way than you've done so far. Similarly, from a capital standpoint, are there opportunities to do things differently when we think about just the balance sheet management? I think the capital return has been about 80% payout. I would love your thoughts there, John. Thanks.

Morning. Yes. Uh, hey John, uh, maybe just following up, uh, on the capital T. So it sounds like, uh, everything you said we should, we are setting up for.

Elizabeth Lynn: Yeah, I mean, I don't, you know, in the capital side of things, I think we have an exceptionally strong capital profile, as you saw at 9:30. I think when we think about how to manage capital, we think about supporting a very strong dividend. You saw an excellent growth in the dividend in the second quarter that was announced. We think about the fact that making capital available to deploy that into growth in RWA, as well as investing in strategic initiatives. You also would have seen the use of our strong capital base to make a few bolt-on acquisitions that accelerate our strategy in a number of our businesses in the wealth space in particular. There were others. Those are all exciting uses of capital, and that will continue.

Some version of a franchise efficiency plan on the expense side, as well as how you can tap into growth, even in a much better way than you've done so far. Similarly, from a capital standpoint, are there opportunities to do things differently when we think about just the balance sheet management? I think the capital return, that's been about an 80% payout. Would love to get your thoughts today. John, thanks.

Yeah, I mean, I I I I don't, you know, in the capital side of things, I think we have an exceptionally strong Capital uh profile as you saw at 9:30. Um, I I think the when we think about how to manage Capital, uh, we think about um uh, you know, supporting a very strong dividend. You saw an excellent growth in the dividend and the and the second quarter that was announced

Elizabeth Lynn: Given our strong profitability, it does allow us to also be able to make the statement that we're also going to have a very strong return of capital to shareholders of roughly 80% for 2025. We'll continue to work through that waterfall as you know on an ongoing basis, balancing return of capital with the ability to deploy capital over time. Nothing, no real huge pivots expected on the capital front other than continuing to evaluate the opportunities to put capital to work to serve our clients.

Those are all exciting uses of capital and that will continue, but given our strong profitability, it does allow us to also be able to make the the the the statement that we're going to have a very strong return of capital to shareholders of roughly 80%, um, for 2025, we'll continue to work through that waterfall, as you, you know, on an ongoing basis balancing, uh, return of capital with the ability to, to deploy Capital over time. Um, so, um, nothing, nothing, um, uh, no real, huge pivots expected, um, on the Capitol Front, um, other than continuing to um, evaluate our our, the opportunities to put Capital to work, serve our clients

John Woods: Thanks. Just really sticking with that, you mentioned strategic investments as the third sort of capital priority. Given the regulatory backdrop that we are seeing, does that allow for something more larger as opposed to bolt-on acquisitions that could strategically put the firm on a much better growth trajectory or just tap into businesses? Obviously, we had the acquisition from a few years ago with BBH. I would love to hear in terms of just from appetite for larger deal-making, is there an opportunity? If so, where would that make more sense? Thanks.

Thanks. And this will be sticking with that. You mentioned strategic investments as the third sort of capital priority given the regulatory backdrop that we are seeing. Does that allow for something more large-scale, as opposed to bolt-on acquisitions?

Strategically put, uh, the firm on a much better growth trajectory, uh, or just tap into businesses that... I mean, obviously we had, uh,

The acquisition from a few years ago with BBH has sparked an appetite for larger deals. I'd love to hear if there is an opportunity, and if so, where that would make the most sense. Thanks.

[Company Representative]: Abraham, as you know, we've been quite clear and disciplined about how we think about M&A. M&A is not a strategy, but it's a way to implement and accelerate a strategy. It's a very high bar for us because shareholders have alternatives and alternative use of that capital. We would agree with your assessment that the environment, particularly in the U.S., is probably a little bit more benign than it's been in the past, but that doesn't change our standards. We are confident in our organic growth capabilities, but we will continue to look at opportunities to accelerate our strategy. What we did with Apex is actually a great example of that. We've been talking about wealth services now for a little over a year with you.

[Company Representative]: We like the trajectory we're on, the opportunity to make this investment in Apex, and more importantly, to have some significant influence and control over the commercial direction of it as it relates to wealth custody was a way that we felt could absolutely accelerate our revenue gathering capability. That's an example. Whether it's a large acquisition or a small acquisition, it'll go through that same kind of discipline bar.

Abraham is as, you know we've been quite clear and disciplined about how we think about m&a. Um, m&a is not a strategy but it's a way to, uh, Implement, uh, and accelerate a strategy. And so, it's a very high bar for us because shareholders have Alternatives and alternative use for that Capital. So, uh, we would agree with your assessment that the, uh, that the environment particularly in the US is, is probably a little bit more benign than it's been in the past, but that doesn't change our standards. So we will continue to um uh we're we're uh, we're confident in our organic growth capabilities but we will continue to look at opportunities to accelerate our strategy. Uh, and and what we did with Apex is actually a great example of that. Uh, we've been talking about wealth service. Now, for a little over a year with you, um, and we like the trajectory

On the opportunity to, uh, make this investment in Apex and, more importantly, to um, have some significant, uh, influence and control over, um, the commercial direction of it, as it relates to wealth custody was a way that we felt could absolutely, um, accelerate our revenue gathering capability. So that's an example.

Um, whether it's a large acquisition or a small acquisition, it'll go through that same kind of discipline bar.

Ron O’Hanley: Our next question will come from David Smith with Truist. Your line is open. Please go ahead.

David Smith with Truist. Your line is open. Please go ahead.

[Analyst 1]: Thank you. On the topic about the Apex investment and overall your integrated model, you spoke some about the investment services opportunities with wealth providers that this investment creates for State Street. Does that also create potential opportunities in the investment management side of the house?

[Company Representative]: Yeah, it's a great question, David, because the rise of wealth management creates real opportunities and has created real opportunities for investment managers. We are already actively participating in that space. A significant portion of State Street's investment management assets under management, well over 20%, is associated with wealth. You know, you can see the growth there, for example, in the low-cost S&P funds, which are growing at a much higher rate than the industry, than the overall. We continue to build share there. That is very much a part of our strategy as we think about wealth services, which is providing the infrastructure and the servicing capabilities to our clients, but also in a very user-friendly and convenient way, providing them with these asset management exposures that we can provide at very low cost.

Thank you. On the topic about, um, you know, the Apex investment and overall your integrated model, you spoke some about the investment services opportunities with well providers that, you know, this investment creates for State Street. Does that also create potential opportunities in the investment management side of the house?

You know, it's it's a great question David because, um, the rise of, uh, of wealth management, um, as uh, creates real opportunities, and has created real opportunities for investment managers. Um, we, we are already actively participating in that space. Um, and so a significant portion of State Street's, uh, uh, State Street Investment Management assets under management. Well, over 20% of it, uh, is associated.

Associated with wealth. And you know, they you you can see the growth there, for example, in the low cost sap funds, which are growing, um, at a much higher rate than the industry than the, uh, than the overall. And we continue to build share there. And so, uh, that is very much a part of our strategy as we think about wealth Services, which is uh, providing the infrastructure, uh, and the servicing capabilities to our clients. But also, um, in a very user-friendly and convenient way, providing them with, uh, with these Asset Management exposures that we can provide at very low cost.

[Analyst 1]: Thank you.

Thank you.

Ron O’Hanley: Our next question will come from Vivek Junejia with JP Morgan. Your line is open. Please ask your question.

[Analyst 2]: Thanks. John, just a quick question on your loans that are very much in spotlight right now, NDFI or NDFI, whatever you want to call them. You've got, what is your exposure there? From what we can see, it seems like over 60% of it is to BDCs. Any thoughts on that? Any color on sort of what's the strategic rationale for that higher percentage going to BDCs?

Our next question will come from Vivec Juneda with JP Morgan. Your line is open; please ask your question.

Thanks.

Um, what is your exposure there? From what we can see, it seems like over 60% of it is to BDCs.

Any thoughts on that? Um, any color on sort of what the strategic rationale is for?

Elizabeth Lynn: Yeah, thanks for the question, Vivek. I'd say the 60% is broadly NDFIs, not all BDCs. The way I would talk about this, first, we have a much smaller loan portfolio than most of the banks that you would be in the peer set, just so from a quantum standpoint. When you look at the mix and where we're playing, our growth and the loan portfolio itself is really concentrated in the private market space. Subscription finance, which is exceptionally low credit risk over time, is a huge portion of our loan book, not only outstanding, but also the marginal growth. We do a fair bit of AAA CLOs, second big category for us. There is a category supporting private credit and BDCs, but those are integrated clients that we're serving from a custody standpoint and from a servicing standpoint. These are really deep customer relationships.

That higher percentage is going to be deceased.

Yeah. Um, thanks for the question for that. I’d say, I’d say the 60% is broadly, um, NDF is not all BDCs, but, um, the, um, the way I would talk about this first, we have a much smaller loan portfolio than most of the banks, you know, that you would be in the peer set. In the peer set first, just so from a quantum standpoint, when you look at the mix, uh, and where we're playing, um, our growth and, and the loan portfolio itself is really concentrated in the private credit and private market space. Uh, so subscription finance, which is exceptionally low credit, you know, risk over time, is a huge, uh, portion of our loan book, not only outstanding but also the marginal growth, as well as we do a fair bit of triple A CLS. Uh, the second big category for us. And then there is a category of supporting private credit in BDCs, but those are integrated clients that we're serving, um, you know, from a custody standpoint.

Elizabeth Lynn: The substantial portion of our loan book is exceptionally high quality. It's relatively diversified. There is a CRI book, but it's relatively small, and it's been shrinking over time. Broadly, no real signs of deterioration in credit that we've seen to date. We're keeping an eye on it, but feeling reasonably comfortable with what I've seen so far in the loan book.

And and from a servicing standpoint. And so these are these are really deep customer relationships. And so the uh substantial portion of our loan book is exceptionally high quality. It's relatively Diversified um,

There is a free book, but it's, it's relatively small, um, and it's been shrinking over time. And, um, you know, broadly, no real signs of, um, of deterioration in credit, um, that, uh, that we've seen today. Uh, we're keeping an eye on it but, um, feeling, uh, reasonably comfortable with what I've seen so far, uh, in the loan book.

[Analyst 2]: Okay. When I said BDCs, I meant BDCs from the data we could pull, looks like 60% of your NDFI exposure.

Elizabeth Lynn: Yeah, no, it's just, it's not, yeah, it's broadly NDFIs, you know, but rather than just BDCs.

Okay. When I said BDCs, I meant BDC is from the data. We could probably look at what 60% of your end. Yeah. No, it's exposure. It's not. Yeah. It's broadly in DFI. Um, yeah, but rather than just BDCs.

[Analyst 2]: Ron, a question for you maybe. What are you seeing as regards to Charles River with the fixed income plans? Obviously, there's been the issue with Invesco, but beyond that, are you seeing more outflows in the fixed income auto management systems or any color, any update you can give us there because there's been some questions on that?

Ron a question for you, maybe.

Um, what are you seeing as regards Charles River with the fixed in compliance? Obviously, there's been the issue with...

Invesco. But beyond that, are you seeing more outflows in the fixed income order management systems? Any color? Any update you can give us there? Because there's been some questions on that.

[Company Representative]: As you know, that was an area that we have put a lot of development effort into to not only bring it to par, but to bring it to be a distinctive platform. A lot of that development was delivered last year. Even more is being delivered this year. Not only are we not seeing outflows, but we've got much of the backlog that you see, of the Alpha backlog that you see, includes clients that will be coming on to the fixed income side of it. It's both equities and fixed income are equally important to us.

No, I mean, the, uh, if, if, you know that was an area that we have, uh, put a lot of development effort into, uh, to not only bring it to par, but to bring it, uh, to be a distinctive platform. A lot of that development was delivered last year; even more is being delivered this year. So, uh, not only are we not seeing outflows, but we've got, um, much of the backlog that you see, uh, of the Alphabet log that you see includes clients that will be coming on to the fixed income side of it. So, um, it's, uh, both equities and fixed income are equally important to us.

[Analyst 2]: Okay, thank you.

Okay, thank you.

Ron O’Hanley: Our next question will come from Brendan Hawkin with Bank of Montreal. Your line is open. Please ask your question.

Our next question will come from Brandon Hawkins with Bank of Montreal. Your line is open; please ask your questions.

[Analyst 1]: Hi there. Thanks for taking my question. I'd like to follow up on Vivek's last question, actually. I know that you spoke to sustained optimism on the software and processing side. Within the marketplace, it does, at least in the minds of a lot of investors, seem to suggest that Aladdin is picking up some momentum. From what we hear, it's not purely the fixed income side. There's some equity, decent-sized equity managers who are considering the shift as well. When you think about how the product is positioned in the marketplace, what adjustments are you looking to make in order to better position competitively and maybe recapture some of the solid momentum you've had previously? Thanks.

Uh, hi there. Thanks for, uh, taking my question. So I'd like to follow up on the Vex. Last question, actually, um, I I know that you spoke to, uh, uh, sustained optimism on the, uh, software and processing side. Uh, but but, you know, within the marketplace, it does at least in the minds of a lot of investors seem to suggest that, um, Aladdin is picking up some momentum. Um, you know, uh, and so, and, and it, from what we hear is not purely. The fixed income side, um, you know, there, there's some Equity decent sized Equity managers who are, who are considering that the shift as well. Um, when you think about,

How does the progress position in the marketplace? You know what adjustments are you looking to make, in order to, um, better position competitively and, and, and maybe, you know, recapture some of the solid momentum you've had previously? Thanks.

[Company Representative]: Brendan, we remain pleased with the momentum that we have. When we think about Charles River, there are two important elements of it. There is Charles River standalone as a front office software provider, and then there is Charles River as part of an integrated Alpha offering. Sometimes Charles River is completely integrated into Alpha, where it is the front, and then we're doing the middle and the back and other elements of Alpha. Sometimes, as we said from the outset on Alpha, we were going to build this as an open architecture interoperable platform. We are also the largest operator of the competing platforms, where it will be another front office platform, but we are there as the middle office provider and as the back office provider. The growth there in all those segments continues to be strong. It's a competitive marketplace.

Brandon the, uh, we we remain. Um, we remain pleased with the momentum that we have. Um, and when we think about Charles River, there's there's 2 important elements of it.

There's Charles River standing alone as a front office software provider.

And then we're doing the middle and the back and other elements of Alpha and sometimes.

[Company Representative]: When you look at where the business is going and who's gaining share, first of all, it's one of these very interesting markets where there are some third-party players, but you're also competing with the insourced option. There is still a fair amount that's insourced that's probably not viable over time, which will remain a source of growth. Competition is good. We view ourselves as a very formidable competitor, and we'll continue to put investment into it. The last thing I would point out is going back to the point on wealth. We're a significant player on the wealth front end, and we're building that out.

As as we said from the outside on Alpha, we were going to build this as a, um, open architecture interoperable platform. So, uh, we are also the largest operator of the competing platforms where, um, it'll be another front office platform. But we are there as the middle office provider and as the uh and as the uh back office provider and and the growth there uh in in all those segments continues to be strong, um, it's a uh it's a competitive Marketplace but when you look at where the business is going and who's gaining share? I mean the uh, first of all, it's 1 of these very interesting markets where uh, there's some third-party players um but you're also competing with the insourced option. Um,

[Company Representative]: Now being able to partner that with what we've done on the wealth custody side, we think creates some significant opportunities in some of the out years in terms of having an additional source of revenue from the wealth side where Charles River is the front end in the portfolio construction of these advisor and advisor platforms and the custody being provided by our wealth custody offering.

And there's still a fair amount that's in Source. That's probably not viable over time, which will remain a source of growth. So, uh, competition is good. Um, and we see ourselves as a very formidable competitor, and we'll continue to put, um, uh, investment into it. Uh, the last thing I would point out is, uh, going back to the point on wealth. Um, we're a significant player on, uh, the wealth front end, and we're building that out.

being able to, um,

To partner that with what we've done uh, on the wealth custody side, we think creates um, some significant opportunities uh, in some of the out years in terms of having um, a a, a additional source of revenue from the well side, where Charles River is the front. And in the portfolio construction of these advisor and advisor platforms and the custody being provided by our wealth custody offering.

[Analyst 1]: Great. Thanks for that color, Ron. John, I'd love to drill down on reinvestment rates. Could you speak to where reinvestment rates versus roll-off rates are, how much you're picking up? Doing the math on the deposit beta, in the U.S. dollar, which is clearly your largest base of deposits, running around maybe low to mid-70%, depending year over year versus quarter over quarter. Is that what gets to, is the roll-off rates what gets to the U.S. rate neutrality, or do you think you're rate neutral even before we account for the roll-off benefit? Thanks.

Great. Thanks for that color on. Um, John.

Love to drill down on, uh, reinvestment rates. Uh, so, you know, could you could you speak to where the investment rates versus rolloff rates? Are you know how much you're picking up? And and, you know, doing the math on the deposit beta, you know, in the US dollar which is clearly your your largest base of of deposits running around, maybe, uh, you know, low to mid-70s depending year-over-year versus quarter or quarter. Uh, is that what gets to is the roll off rates, what gets to the US rate neutrality, or do you think your rate neutral even before we account for the roll off benefit?

Elizabeth Lynn: I think you put it all in when you basically say in the U.S., we're in the neighborhood of, call it, I think we've said this previously, but in the neighborhood of around $2 million per cut per quarter. Near neutral with respect to the Fed. That's encompassing all factors. In terms of the reinvestment roll-off and reinvestment, you can kind of see that in the neighborhood of approximately, and this jumps around quarter to quarter.

Elizabeth Lynn: A rule of thumb, and again, to be clear, it can be a little higher or a little lower in any given quarter, but rule of thumb is we tend to get about $5 billion of cash flows that get reinvested, round numbers, at about a, call it, 75 to 100 basis point round trip, where you're kind of maturing in the low threes and being able to reinvest somewhere near high threes or in the low fours over the last couple of quarters. That's a pretty good rule of thumb in terms of that. That'll continue into the future and certainly through 2026. More broadly, the terminated hedge item that I mentioned earlier, that's not been in our run rates in terms of the benefit. That benefit will newly present itself in the fourth quarter and will also be a tailwind into 2026.

So, um, you know, I think, I think you put it all in when you basically say in the US. Um, you know, we're we're in the neighborhood of call it, you know. Uh, I think we've said this previously, but in the neighborhood of around 2 million dollars per cut per quarter, some near neutral, with respect, to the fed. That's in, that's encompassing all factors. Um, in terms of the, the, the reinvestment, uh, roll off and reinvestment you, we, you can kind of see that in the neighborhood of approximately, you know, and this jumps around quarter to quarter and, uh, but, but a a rule of thumb, you know? And again, to be clear it can be a little higher, a little lower, any given quarter of a rule of thumb, as we tend to get about 5 billion dollars of cash, flows that get reinvested

Round numbers at about a call at 7, 5, 1.

Elizabeth Lynn: It's those two items, which are mostly not rate dependent, that add to the other forces I mentioned, which is some strong spot deposit levels at the end of the third quarter that directionally continue to be above the averages for 3Q into 4Q quarter to date that really underpin a lot of the support for rising net interest margin and NII in 4Q. We'll come back to you in January with an update about where all that comes together and shakes off for 2026. Those are my thoughts on that question.

Um, more broadly, the the the terminated hedge item that I mentioned earlier, that's not been in our run rates. Uh, in terms of the benefit that benefit will will newly uh, present itself in the fourth quarter and will also be a Tailwind into 2026. And so it's it's those 2 items which are mostly not rate dependent.

Ron O’Hanley: There are no further questions. I will turn the call over to management for closing remarks.

There are no further questions, so I will turn the call over to management for closing remarks.

[Company Representative]: Thank you all for joining us.

Thank you all for joining us.

Ron O’Hanley: Have a good day and feel free to reach out to Investor Relations with any questions. Thank you. Bye.

Have a good day, and feel free to reach out to Investor Relations with any questions. Thank you. Bye.

[Analyst 3]: The host has placed this conference on hold. The host has ended this call. Goodbye.

The host has placed this conference on hold.